Thompson v. Toland

By the Court, Crockett, J.: In the view we take of this case, it will be unnecessary to consider many of the points which have been elaborately discussed by counsel. There is no conflict in the evidence to the effect that when the stock certificates in controversy were delivered to Sime & Co., as collateral security for the indebtedness of Tilden & Breed, they were properly en [112] dorsed, so as to pass by delivery. There was nothing on the face of them to raise a suspicion that they were not the property of Tilden & Breed; and the jury finds, on evidence substantially conflicting, that Sime & Co. received the certificates in good faith, and without notice of King’s alleged equities. We, therefore, cannot disturb the verdict on this point. The jury also finds that the certificates were delivered to Sime & Co. with the consent of Tilden & Breed, as collateral security for the indebtedness of the latter firm to the former, for a sum exceeding thirty-five thousand dollars, no portion of which has been paid or tendered. We think the evidence warranted this finding, and that Tilden & Breed assented to the delivery of the certificates and their hypothecation, as above stated. King had permitted the certificates to remain in the hands of Tilden & Breed, indorsed in such manner that they would pass by delivery, and with nothing on their face to indicate that he had any interest in them,' or that they were not the property of Tilden & Breed, whom he has clothed with all the usual indicia of the ownership of mining stocks. He had placed them in a position to deal with the stocks as though they were the absolute owners. They could at any time have caused them to be transferred on the books of the respective mining corporations into their own names, and any purchaser or pledgee holding under them could also have done so. If they had no right under the contract between them to sell or hypothecate the stocks except with his consent, he nevertheless clothed them with such an apparent ownership as to mislead the public, and to enable Tilden & Breed to hold themselves out as the owners, and thus defraud innocent persons dealing with them in good faith. Under such circumstances, the party w'ho places another in a position to enable him to practice the fraud should suffer the loss rather than an innocent person who deals with him on the faith of the usual indicia of ownership with which the true owner has invested him. If King had desired to preserve his alleged rights, and to prevent an abuse by Tilden & Breed of the secret trust on which it is claimed they, held the stocks, he should have [113] seen to it that the nature of the trust appeared on the face of the certificates, or in some other method have placed it out of their power to deal with the stocks as their own. In this State, mining stocks, properly indorsed, pass by delivery almost as currently as bank notes; and if the true owner places them, or knowingly allows them to remain in that condition in the hands of another, on some secret trust between them, he, and not an innocent purchaser or pledgee, must bear the loss resulting from a breach of the trust.; This point was substantially decided in Brewster v. Sime, 42 Cal. 139, and we see no reason to doubt the correctness of the proposition. We are, therefore, of opinion that the transaction between Sime & Co. on the one side, and Tilden & Breed on the other, is to be treated, for the purposes of this action, as though the latter had the absolute right as against King, to pledge the stocks on the 31st of August, 1868, when they were hypothecated. It appears, however, that the District Court of the United States, in an action between the assignee in bankruptcy of Tilden & Breed as plaintiffs and Sime & Co. as defendants, held the hypothecation to the latter, under the circumstances, to be a fraud upon the bankrupt law, and, therefore, void as against the other creditors of Tilden & Breed. It, therefore, compelled Sime & Co. to account to the assignee for the value of the stocks. But this cannot improve the status of the plaintiff in this action*. Though void under the bankrupt law as against the other creditors of Tilden & Breed, the transaction was valid as against King and every one else; and when Sime & Co. paid to the assignee of Tilden & Breed the value of the stocks, they thereby acquired whatever title the assignee had to them. The effect of the satisfaction of that judgment was-to vest the title of the assignee in Sime & Co. But so far as King’s rights are concerned, they are no greater than they were before. The case then resolves itself into this: that Sime & Go., in good faith and without notice of King’s alleged equities, received these stocks from Tilden & Breed, who were the apparent owners, with the usual indicia of ownership, as a pledge to secure the payment of a subsisting debt, which has never been paid or [114] tendered. Under these circumstances, King’s alleged rights, founded on the secret trust between himself and Tilden & Breed, are subordinate to those of the pledgee’s. It remains to be considered to what extent, if at all, King’s rights are affected by the fact that Sime & Co. sold a portion pf the stocks and converted them to their own use,, without a previous demand and notice. As we have seen, the stocks are to be deemed as against King, to have been held by Sime & Co. under a valid pledge to secure a debt due from Tilden & Breed. If Sime & Co. have unlawfully sold and converted the stocks without a previous demand and notice, it was the rights of Tilden & Breed, the pledgors, and not those of King, wliich were injuriously affected. The contract of pledge was between Sime & Co. and Tilden & Breed; and the right of action for violation of the contract or a breach of duty by the pledgee, was in the pledgors and not in a stranger to the transaction. It is a sufficient answer to any action by King founded on his supposed rights, if any he has outside of the contract of pledge between Sime & Co. and Tilden & Breed, that the stocks were held under a pledge which was valid as against him, and to which he was a stranger, and that the debt, for which they were pledged has not been paid or tendered. Among the numerous rulings of the Court below, which ■ the plaintiff claims to have been erroneous, we discover no error which could injuriously affect the plaintiff in the view we have taken of the case. Judgment and order affirmed.